Moneywise Investment Trust Awards 2017
If you are looking to access a diversified portfolio of shares, managed on your behalf then investment trusts can be a great alternative to funds. Whether you are saving for your retirement, for children or grandchildren or simply building your own nest egg an investment trust could be the ideal vehicle.
However, during uncertain economic times making the right choice for you can be difficult. With your hard-earned savings at stake, you want to be sure that the manager can ride out stock market ups and downs and grow your money over the long term.
The Moneywise Investment Trust Awards exist to do the hard work for you and help you identify the right options – whatever your objectives or wherever in the world you want to invest.
With the assistance of data from Morningstar and a panel of expert judges, we have hand-picked the trusts that can help you reach your savings goals.
UK all companies
“This sector will have an important role in most investors’ portfolios,” says judge and Chase De Vere chartered financial planner, Patrick Connolly. “However, there is a great deal of uncertainty in store, not least the start of the Brexit process, further currency fluctuations and implications from international events in Europe, the US and China.”
This means investors need to choose wisely – particularly given the diverse array of trusts in the sector. All our judges agreed that our winner in this category – Fidelity Special Values – is a first-class trust.
Gavin Haynes, judge and managing director at wealth management company Whitechurch Securities, says: “Manager Alex Wright has a clearly defined process that has generated strong, risk-adjusted returns from investing across the UK stock market.”
The trust invests in all sizes of UK companies, but has an inherent bias towards small and medium-sized companies. It also has an investment style that focuses on a value and contrarian approach.
“2016 was a very difficult year to be investing in this space, but Mr Wright has once again proven to be an impressive manager,” adds Mr Haynes.
Taking the runner-up position is last year’s winner, Invesco Perpetual Select UK Equity. Judge Monica Tepes, investment company analyst at Cantor Fitzgerald praises the “great track record from Mark Barnett in this small size fund”.
UK equity and bond income
Trusts in this sector offer maximum diversification by investing across equities and fixed-interest investments, such as government and corporate bonds.
Mr Connolly says: “It can play a role for those with smaller amounts to invest who specifically want exposure to the UK.”
Taking the award for the second year in a row is Henderson High Income. David Holder, judge and senior analyst at Morningstar, says: “Overall, the trust has performed well versus its peers and the sensible investment approach has merit for those investors whose primary objective is receiving a high level of regular income.”
Hot on the heels of this trust is City Merchants High Yield, the preferred choice of Mr Connolly. “It pays a yield of over 5% a year and its management team adopts a fairly flexible approach in terms of asset allocation, currently taking a defensive stance to protect capital. It should be a comparatively safe haven for those who want a high level of income,” he says.
UK equity income
“This is a ‘flagship’ sector for investment trusts, incorporating heavyweight managers such as Mark Barnett, Job Curtis and Nick Train,” says Mr Holder.
He points out that investors in equity income trusts can benefit from an income account facility that can smooth return distributions through the good times and bad. Investment trusts can hold back 15% of income to boost returns at a later date. This gives them an advantage over open-ended funds such as unit trusts and oeics.
Taking the award for an impressive seven years in a row is Finsbury Growth & Income, managed by the aforementioned Nick Train. Mr Haynes says: “This trust posted another strong return in 2016, to extend its impressive track record. Mr Train has a distinctive investment process whereby he builds a concentrated portfolio of UK companies that are viewed as global leading franchises and are held for the long term.”
Coming in a close second is last year’s runner-up, the Edinburgh Investment Trust. The trust is run by Mark Barnett, who took the helm in 2014 when Neil Woodford left Invesco Perpetual (the company that manages the trust).
Mr Holder says: “Having worked alongside Mr Woodford for most of his career, Mr Barnett follows a similar high conviction approach to fund management. Following a cut of the performance fee in 2014 and continued decreases in costs, the fund’s ongoing charge of just 0.61% makes it one of the most competitive fee structures in this category.”
UK smaller companies
“UK smaller companies have fallen out of favour due to Brexit concerns and this has seen widening discounts, which has hurt price performance. However, it could provide an attractive entry point for long-term investors,” says Mr Haynes.
Ms Tepes agrees. “Despite great track records and strong management teams, the sector is on double-digit discounts. It’s the most consistently unwarrantedly unloved sector in my view,” she says.
Taking the crown for the second year in a row is Henderson Smaller Companies. Mr Holder says: “The smaller companies team at Henderson benefits from the very experienced duo of Neil Hermon and Colin Hughes, together with Indriatti van Hien. The investment process is rigorous and established. Mr Hermon is valuation conscious but is willing to pay up for
higher-quality and earnings-growth characteristics.”
Mr Haynes adds that with a “low ongoing charge of 0.46%, this a strong offering for small cap exposure”. BlackRock Smaller Companies comes in second place. Ms Tepes praises its “great track record from the highly regarded BlackRock management team”.
Property direct UK
“Many commercial property investments were hit following the fallout from the EU referendum vote, but they have largely bounced back well,” says Mr Connolly. “This asset class can offer a consistent income stream and is ideal for diversifying investment portfolios away from shares and fixed interest.”
Last year’s runner-up, Standard Life Investments Property Income, is this year’s winner. “This is a diversified ‘bricks and mortar’ property fund from an experienced and wellresourced management team. It would make a good core holding, paying an attractive income and investing across industrial, office, warehouse and retail property. It should continue to provide consistent returns.”
F&C UK Real Estate Investments takes second place. Mr Holder says: “The fund is a balanced UK portfolio of physical UK property with a bias to the south east of England and the retail sector in general. The fund exhibits a very low vacancy rate of 3%, providing ‘bread and butter’ commercial property exposure.”
“The global sector is ideal for long-term buy and hold investments and it is one that performed well in 2016, in part because of the weakness of sterling,” remarks Mr Connolly.
However, in such a diverse sector he cautions that investors must investigate their chosen trust’s objectives carefully. “Funds can differ signifi cantly in terms of their geographical spread and their investment approach and so investors need to fully understand where they are investing.”
The award this year goes to Scottish Mortgage. Mr Haynes says: “This globally diversified stock-picking trust is managed by the highly regarded James Anderson. He focuses on long-term themes and has a bias towards companies that are exploiting technology. It has proven to be a successful philosophy over the short and long term. The trust also has a competitive charging structure with an ongoing charge of just 0.45%.”
The runner-up for the second year is Lindsell Train. Ms Tepes says: “It’s a unique fund that has possibly the strongest track record of all investment trusts – impressively strong performance with equally impressive capital protection.” But she does sound a note of caution.
“While the net asset value (NAV) has been growing steadily, the price has been very volatile over the last year as the premium has reached ‘bubble’ territory (75%) and subsequently halved.” But she says it’s “a great buy if you can get it on a more reasonable premium”.
Global emerging markets
After years in the doldrums, emerging markets returned to favour in 2016 and were boosted by falls in sterling.
However, while the sector may be back in the ascendancy investors need to tread carefully. Mr Haynes says: “I continue to believe that the long-term growth potential remains compelling, but investors need to be prepared to accept the higher risks attached.”
The winner in this category, JP Morgan Emerging Markets, was also last year’s runner-up. Managed by Austin Forey since 1994, Mr Haynes says it “offers well-managed and well-diversified exposure” to the sector.
Mr Connolly agrees: “This trust benefits from one of the largest and best resourced emerging markets investment teams and is about as close as you are likely to get to a ‘sleep at night’ trust investing in the sector.”
Taking the runner up position is BlackRock Frontiers which has a focus on less developed economies than conventional emerging markets funds.
Ms Tepes says the trust is “run by possibly the best-placed team to access and navigate the challenges of frontier market investing”.
However, Mr Connolly says that while performance is impressive investors must expect a bumpy ride. “This is a high-risk and volatile trust investing in frontier markets such as Argentina, Romania and Bangladesh, where regulation, transparency and corporate governance are likely to be worse than in the developed world,” he says.
“While we often hear doom and gloom stories about the economic prospects within Europe, it should be remembered that the region is home to many good-quality companies that make consistent profits,” says Mr Connolly.
“Those managers investing in larger companies can benefit from companies which have significant earnings outside of Europe, while those investing in smaller companies have the opportunity to find businesses which have been overlooked or under-appreciated.”
Our winner this year, Henderson EuroTrust, knocks Jupiter European Opportunities off the top spot after six consecutive years. Mr Haynes says:
“I believe this is an excellent trust for core European equity exposure. It has been managed by Tim Stevenson for over 20 years. Performance has beaten benchmarks over long and short term and the trust performed well again in 2016, while remaining one of the lower volatility offerings in the sector.”
Our long-term champ, Jupiter European Opportunities, still comes in an impressive second place. Mr Holder says it is a compelling choice for European equities. “Alexander Darwall has been in charge of this fund from the start and we think this stability at the helm is a contributing factor to the fund’s success so far.”
Asia Pacific Ex. Japan
2016 was a good year for the sector which, like other international sectors, cashed in on sterling’s weakness. “This is a potentially high-growth region where investors can achieve spectacular returns,” says Mr Connolly, “but this usually comes with a degree of risk. It has, however, been shown time and again that the trusts which perform consistently well tend to be those with signifi cant research resources in the region.” This can certainly be said of both our winner and our runner-up this year.
In top spot is last year’s runnerup, Schroder Oriental Income. Mr Connolly says: “This is a consistent and, for the sector, low-volatility fund, which has an experienced manager, competitive charges and pays an income of about 4% a year. The focus on income, alongside capital growth, is demonstrated by the fact that the dividend has grown every year since the trust was launched.”
Our runner-up this year is Fidelity Asian Values. Mr Haynes says: “Nitin Bajaj took over the fund in 2005, and the results to date have been very impressive. The remit is to focus on smaller companies across Asia, looking for undervalued growth opportunities. Given the focus on smaller companies, it is at the more speculative end, so suited for investors with a greater tolerance for risk.”
North American and North American smaller companies
“The US market has performed well in recent years and the proposed policies of new US president Donald Trump seem to support further growth.
However, we don’t yet know what impact President Trump will have and the valuations of some stocks look expensive so we’ll probably need to see improved company earnings for shares to go higher from here,” says Mr Connolly. Our winner is the North American Income Trust, which is run by Aberdeen Asset Management.
Mr Connolly adds: “This trust performed exceptionally well in 2016 and, with its focus on largecap dividend- producing companies, was in demand from investors. It’s incredibly unlikely that this will be repeated and there is a risk of shortterm falls, but the trust should be well positioned to provide consistent longterm returns.”
Last year’s winner, JP Morgan American, is this year’s runner-up. Mr Holder says: “This is a sound choice for core US exposure. Fund manager Garrett Fish has been in charge here since 2002 and has more than 25 years of experience. When picking stocks for his portfolios, he uses fundamental analysis from the US equity team and insights from the behavioural finance unit.”
Investment Trust group of the year
For the fourth year in a row, this award goes to Henderson, which won the UK Smaller Companies, UK Equity and Bond Income and the Europe categories this year. Mr Haynes says: “Henderson is at the forefront of the investment trust sector. I am impressed with its UK and European equity offerings and how they have performed well in an uncertain backdrop. Henderson provides a competitive charging structures.”
* Denotes member of Moneywise’s First 50 Funds.
Moneywise Investment Trust group of the year
This year, the awards looked at 10 sectors: Asia Pacific Ex Japan, Europe, Global, Global Emerging Markets, North American and North American Smaller Companies, Property Direct UK, UK All Companies, UK Equity and Bond Income, UK Equity Income & UK Smaller Companies.
Morningstar provided us with performance data over, three, five and seven years (to 31 December 2016).
Trusts were ranked on NAV (net asset value) performance with income reinvested over three years. We aggregated performance over each period to calculate the top trusts in each sector. Morningstar’s risk ratings enabled us to remove any trusts that took a disproportionate risk.
This helped us create shortlists of the top five performing trusts. These shortlists were sent to our judges who were asked to vote for their top three trusts in each sector, taking into account: suitability for Moneywise readers, risk, manager ability, investment strategy, consistency, prospects and pricing, as well as performance.
The shortlist for investment trust group of the year was based on the number of appearances each group made in the sector shortlists. The judges then voted for their top two.
- Gavin Haynes, managing director of Whitechurch Securities
- Patrick Connolly, certified financial planner at Chase de Vere
- Monica Tepes, investment companies analyst at Cantor Fitzgerald
- David Holder, senior analyst, manager research at Morningstar UK
Open-ended investment companies are hybrid investment funds that have some of the features of an investment trust and some of a unit trust. Like an investment trust, an Oeic issues shares but, unlike an investment trust which has a fixed number of shares in issue, like a unit trust, the fund manager of an Oeic can create and redeem (buy back and cancel) shares subject to demand, so new shares are created for investors who want to buy and the Oeic buys back shares from investors who want to sell. Also, Oeic pricing is easier to understand than unit trusts as Oeics only have one price to buy or sell (unit trusts have one price to buy the unit and another lower price when selling it back to the fund).
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
A catch-all phrase that can range from assessing the price of a property or vehicle before offering it for sale or the net worth of assets in an investment portfolio to the prices of shares on a stock exchange.
The general term for the rate of income from an investment expressed as an annual percentage and based on its current market value. For example, if a corporate bond or gilt originally sold at £100 par value with a coupon of 10% is bought for £100 then the coupon and the yield are the same at 10%, or £10. But if an investor buys the bond for £125, its coupon is still 10% (or £10) and the investor receives £10 but as the investor bought the bond for £125 (not £100) the yield on the investment is 8%.
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
Generic, loosely-defined term for markets in a newly industrialised or Third World country that is in the process of moving from a closed economy to an open market economy while building accountability within the system. The World Bank recognises 28 countries as emerging markets, including Argentina, Brazil, China, Czech Republic, Egypt, India, Israel, Morocco, Russia and Venezuela. Because these countries carry additional political, economic and currency risks, investors in emerging markets should accept volatile returns. There is potential to make large profit at the risk of large losses.
An interchangeable term for shares (UK) or stocks (US). Holders of equity shares in a company are entitled to the earnings and assets of a company after all the prior charges and demands on the company’s capital (chiefly its debts and liabilities) have been settled. To have equity in any asset is to own a piece of it, so holders of shares in a company effectively own a piece proportionate to the number of shares they hold. (See also Shares).
Everything you own: all your assets (property, cars, investments, savings, insurance payouts, artwork, furniture etc) minus any liabilities (debts, current bills, payments still owed on assets like cars and houses, credit card balances and other outstanding loans). When you’re alive this is called your wealth; when you’re dead, it becomes your estate.
An individual employed by an institution to manage an investment fund (unit trust, investment trust, pension fund or hedge fund) to meet pre-determined objectives (usually to generate capital growth or maximise income) in prescribed geographic areas or investment sectors (such as UK smaller companies, technology or commodities). The manager also carries the responsibility for general fund supervision, as well as monitoring the daily trading activity and also developing investment strategies to manage the risk profile of the fund.
If you own shares in a company, you’re entitled to a slice of the profits and these are paid as dividends on top of any capital growth in the shares’ value. The amount of the dividend is down to the board of directors (who can decide not to pay a dividend and reinvest any profits in the company) and they will be paid twice yearly (announced at the AGM and six months later as an interim). Dividends are always declared as a sum of money rather than a percentage of the share’s price. Although dividends automatically receive a 10% tax credit from HM Revenue & Customs (HMRC), which takes the company having already paid corporation tax on its profits into account. Dividends are classed as income and, as such, are liable for personal taxation and so shareholders have to declare them to HMRC.